A professor who is leading the University of Minnesota Medical School's effort to write tougher ethics rules was himself disciplined in 2004 for secretly steering a $501,000 research grant to his own company, according to university investigative reports obtained by the Star Tribune.

Dr. Leo Furcht, the chairman of lab medicine and pathology, was reprimanded for a "serious violation" of university conflict-of-interest policies in connection with a grant from Baxter Healthcare for stem cell research at the Medical School, according to the investigation, which the newspaper received through the state's public records law.

As a result, Medical School Dean Deborah Powell banned Furcht in May 2004 from any business-sponsored research for three years.

In 2007, Powell named Furcht to co-chair a task force to reform the Medical School's conflict-of-interest policy.

Furcht, a nationally known scientist and author, declined to comment. He said through a spokeswoman that the matter had been "amicably resolved," and that there was nothing to be gained by talking about it.

Powell said in an interview that she chose Furcht for the task force because he had extensive experience with national professional organizations on devising conflict-of- interest rules. "That seemed to me to be a compelling reason to appoint him to that role," she said.

Furcht's case has come to light in the midst of a contentious internal debate at the Medical School about a new ethics code that would be among the toughest in the nation.

Across the country, universities are struggling to define the proper relationship between business and academia, as federal investigators probe the ties between doctors and medical companies.

Powell said Friday she did not inform the rest of the task force members about the sanctions against Furcht. "I did not think it was relevant," she said. Furcht had followed the 2004 restrictions to the letter, and "it seemed time to move on and use his expertise, which was considerable," she said.

But the internal investigation showed how Furcht flouted the university's ethics rules on a research project in which he stood to make millions of dollars.

Ironically, it didn't even involve Furcht's own research.

'Significant financial interest'

In the late 1990s, a colleague, Dr. Catherine Verfaillie, had made a breakthrough in stem-cell research. When the university declined to patent it, Furcht created his own company, MCL, and filed for the patent along with Verfaillie and another researcher.

In July 2000, Furcht lined up a research grant from Baxter to pay for more research, to be conducted in university laboratories, but did not disclose the deal to the university. Instead, Baxter paid the money, $501,000, to MCL.

Verfaillie said Friday she performed the research in her university lab, but did not receive the money. Eventually, she contacted the dean, triggering an investigation.

A panel of three faculty members investigated and concluded that Furcht "committed a serious violation of the conflict of interest policy," according to a Dec. 19, 2003, report.

Among other things, they found that Furcht "knew or should have known" that he was required to disclose the financial arrangement with Baxter, because he had "a significant financial interest" in MCL and the stem-cell technology.

"In fact, it appears Dr. Furcht stands to personally gain several million dollars from the pending sale of MCL," the report said.

In November 2003, Furcht sold MCL for $9.5 million in stock, sharing 5 percent of the proceeds with the university.

The panel recommended that Furcht be disciplined and questioned whether he should retain his position as department chair. It also raised concerns that he may have misused his position "to personally benefit him and his commercial interests," and recommended further investigation.

In her letter concluding the matter, Powell wrote: "Despite this, I value your managerial abilities as a department head and wish to retain you in this role."

University officials said Friday that the university was reimbursed for the $501,000.

Frank Cerra, the university's senior vice president for health sciences, said Friday he was familiar with the case but couldn't recall details. He said Furcht's experience could help inform the conflict-of-interest committee's work.

"If they learn from it and they move along in a direction where it doesn't happen again, that's exactly what you want to happen with an ethics policy,'' Cerra said. "If that's the case here, there can be a positive contribution to the next set of rules and interpretations.''

Toughening ethics rules

Dr. Doris Taylor, a university heart researcher and member of the task force, said that Furcht was only one of 24 voices on the committee and that he supported the new, stricter policies. "I hear him say all the time, we have to be transparent," she said.

She described Furcht as entrepreneurial, "which is one of the things that I admire about him."

"I think he knows what a conflict looks like," she added.

The Medical School is writing new ethics rules at a time when the university has come under pressure to cultivate a closer relationship with Minnesota's high-tech business community and to improve the commercial application of faculty research.

But that territory is treacherous, as other universities have discovered. In the past year, star doctors at some of the nation's top institutions, including Harvard University, have been criticized for failing to report lucrative consulting arrangements with drug companies. Some relationships involved hundreds of thousands of dollars and have tainted the reputation of several top-notch medical schools, including those at Stanford University and Emory University.

The U's Medical School has not escaped the controversy. Last year, orthopedic surgeon Dr. David Polly was named in a congressional investigation of consulting agreements between some of the nation's top spine surgeons and Fridley-based Medtronic Inc.

This month, two prestigious medical centers, the Cleveland Clinic and the University of Pennsylvania's School of Medicine, said they will use public websites to disclose consulting and research agreements involving their physicians and researchers. That type of public disclosure is a key part of the U of M's proposed ethics policy.

In an interview last fall, Furcht said he has served on two national task forces dealing with conflict of interest in research and education. "I've been working on this issue for some time," he said.

Furcht said relationships with industry are often necessary to develop new and innovative therapies for patients. "We don't want to throw out a robust clinical research effort between academia and industry." But at the same time, he said, the university should "assure there is no undue bias.''

"It's just too important to not attend to this [policy] properly. The public trust is more important than the money involved. You have to ensure that."